DoD to look at consolidating commissaries, exchanges

Mar. 28, 2014 - 06:00AM
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The commissary review will be conducted by the Pentagon's Cost Assessment and Program Evaluation Office, according to an internal Pentagon email sent Thursday by Christine Fox, acting deputy secretary of defense. (Steve Helber/AP)

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Defense officials have ordered a review of options that include consolidating commissaries and exchanges, as well as having commissaries adopt an “Exchange-like business model,” according to information obtained by Military Times.

The review will be conducted by the Pentagon’s Cost Assessment and Program Evaluation Office, according to an internal Pentagon email sent Thursday by Christine Fox, acting deputy secretary of defense, a copy of which was obtained by Military Times and later verified by defense officials.

Fox’s email also says she has directed the Defense Department to ask Congress for two “significant changes” in law: allowing commissaries to raise prices rather than sell groceries at cost from distributors and manufacturers; and allowing commissaries to sell generic products, rather than limiting the stores to selling name-brand goods.

The prospect of selling generic brands in commissaries has been cited recently by senior enlisted advisers Sergeant Major of the Army Raymond Chandler and Master Chief Petty Officer of the Navy (AW/NAC) Mike Stevens as a potential way to make commissaries more efficient.

The changes would be requested in legislative proposals that are due to Congress next week.

Those two changes would give the Defense Commissary Agency price and product flexibility to generate enough revenue to make up for a $200 million reduction in commissary funding that DoD has proposed in its fiscal 2015 budget, according to Fox’s email.

That would mark the first phase of a three-year plan that would eventually cut $1 billion from the commissary’s annual $1.4 billion budget. The remaining $400 million a year would be used only to fund commissaries overseas and in remote areas of the U.S.

The proposed funding cuts are still in play, but defense officials have scaled back on a previous draft legislative proposal that would have lifted restrictions on items that commissaries can sell, except for distilled spirits. That proposal also would have removed any reference in law to the commissary benefit as “compensation.”

Fox said in her email that she has directed “that all other major aspects of current statute governing DeCA operations be maintained, and that [the Cost Assessment and Program Evaluation Office] conduct a review” to determine what other changes in law may be needed down the road to allow DeCA to be self-sustaining with a reduced budget of $400 million per year.

Fox’s email capitalizes the word “Exchange” when referring to a study of consolidating commissary and exchange functions — and that’s not a typo.

The Army and Air Force Exchange Service, which began referring to itself as “The Exchange” several years ago, has produced a draft plan for consolidating commissary and exchange operations as an alternative solution to the previous far-reaching draft legislative proposals.

The AAFES proposal was submitted March 17 in response to a DoD request to submit “concerns and alternatives” for dealing with the proposed $1 billion cut in annual commissary funding.

The memo was signed by Thomas Shull, director and CEO of AAFES. “Converting the commissary operation to a nonappropriated fund instrumentality run by the best leadership from the exchanges and DeCA would maximize the probability of preserving the benefit,” Shull said in the memo.

The earlier DoD proposal, Shull said, would have resulted “in the eventual closure of CONUS commissaries and the destruction of the exchanges’ dividends to MWR,” while driving up customer costs by a collective $1 billion per year. About 20 percent to 30 percent of exchange traffic is directly tied to customers visiting nearby commissary stores, he said.

“AAFES proposes an alternate plan: to achieve the same [appropriated fund] savings primarily driven by efficiency, and not by price increase,” Shull wrote.

AAFES conducted an analysis that concluded commissary overhead expenses could be reduced by $250 million to $450 million a year.